Vancouver home prices have soared since 2000. Detached homes cost $400,000 then, and $1,800,000 now.
So yes, in that context, a 5% increase is indeed tiny. The popular conception is that "substantially all" of the rise in price has been due to foreign speculation.
> The popular conception is that "substantially all" of the rise in price has been due to foreign speculation"
Just like "money laundering caused x% of the increase in property prices", the above is a meme, the actual truth of which is unknown. Once repeated enough, such memes eventually turn into axioms (~popular "facts") that then contribute to erroneous thinking in all subsequent discussions.
Once you fully realize and appreciate how important this rarely noticed aspect of human/crowd perception is, reading the news (and discussion about it) becomes a very different experience, I highly recommend trying it.
I'm curious if the underlying analysis considered the compounding effect this has. Someone sells their place for 1 million for laundering, someone with a comparable property who thought it was only worth the 998k now sells it for 1 million, and all the way down. Now next year you've set the baseline 2% higher and so next year everyone adds on 2% of land appreciation cost. But now the next wave of dirty money pushes it another 2%. So net effect over time is much larger than what happens just because of a reduction in supply/increase in demand which I suspect is all that was analyzed.
980k would be 2%.
But more importantly, why would the person buy a property for more than it was worth just because they're laundering money? They would buy a million dollar house at fair value to launder their money.
Because you would expect to lose 40-100% of money you don't launder, either through taxes or confiscation.
So a nominal loss is acceptable. The main thing is to get it laundered, and there is usually some price to pay to do so.
Tony Montana's downfall in scarface happened because he didn't understand this. Here's a scene where his banker explains to him difficulties in laundering as volume rises:
Firstly, the choice is not between a 2% loss or a 40% loss. The choice is between a 2% loss and a 0% loss by buying or selling at the fair market price. Why take a loss if you don't need to?
Secondly, I don't think I agree with your descriptions of the mechanics.
I will quote user @lsc below: "You realize that "money laundering" usually isn't about tax evasion, right? it's about figuring out how to take money gotten from an illegal venture and figuring out how to make that money come from a trackably legitimate source, which means paying taxes on it"
You want to spend the money, which is why you are bringing it into the "white" economy.
Nominal loss is acceptable to many people. If you are worth 10 billion, you might be okay with taking a 1% loss on a million dollar home to just to speed things up. This has nothing to do with it being black or white. You will be just as sensitive or insensitive to losses if you don't need to take them. That is, if you can be patient and get full price, you will do so.
Money laundering often does involve tax evasion. You can launder a source of income that would be taxable into another source that isn't. Laundering the proceeeds of crime to avoid confiscation may or may not do this.
The implied point I didn't spell out is that it can be difficult to launder money without taking a nominal loss. Obviously, if you can avoid it, you do. But if the loss is less than the loss you fear from not laundering, it still looks attractive.
I don't know the chinese case, but I'm assuming capital controls and other laws in both china and the receiving country in some way make it easier to buy and keep real estate compared to more productive assets. There are also advantages such as helping with visas, etc
The comment is in reference to how much it can explain the growth in house prices. Vancouver has seen >60% growth in the past five years. So, 5% is tiny in explaining the growth.
